This paper analyzes the issue of money superneutrality through an intertemporal
optimizing model of capital accumulation with endogenous fertility, i.e. endogenous
population growth. Two elements of this setup invalidate money superneutrality:
i) a demand for fertility that depends on real money balances,
and ii) an inverse relation between capital-labor ratio and population growth.
Higher monetary growth increases fertility, since it reduces its opportunity cost,
and hence diminishes capital intensity, and per capita output. This reverse Tobin
effect is matched by an increase in aggregate capital and output growth rates. In
this framework, the optimal monetary growth rule is a "distorted Friedman rule"....more